WIXLIB

Business AdministrationLecture No.18: Purchasing Management1. Concept/Subject/Organization of Purchasing Management2. Purchasing Cycle and Its Management3. Purchasing Management and Competitiveness :Case of AutomobileTakahiro FujimotoDepartment of Economics, University of TokyoThe figures, photos and moving images with ‡marks attached belong to their copyright holders. Reusingor reproducing them is prohibited unless permission is obtained directly from such copyright holders.

１．Concept/Subject (Target)/Organization ofPurchasing ManagementPurchasing Management isPurchase: standard-specification product (commercial product)Subcontract: design/specs designated by owner--- which are being included in "purchasing management “and "material management" in broad termsLogistics management purchase management in-house physical distribution management physical distribution of final productSupply chain management (SCM) optimum management of total chain

Range of Material Managementpurchasing management(broad term)purchasing management(narrow term)subcontract managementprocess management/ Inventory managementinternal logisticsmaterial managementtrafficphysical distributionexternal logistics

Classification of Material (1)Direct material : retained in final productIndirect material : tool, fuel, etc.Material: low in degree of processPartsformed and fabricated material (formed, before process)single part (processed)composite part (subassembly)functional part (having clear function)module (function self-contained, high composite level)

Classification of Material (2)Purchased product --- standard productCustom-design partsapproved drawing/ consigned drawing items --- detail design by supplierloan drawing parts/process subcontract items --- detail design by auto companiesOpen architecture putting together industry standard parts being acceptedClosed architecture variety of company-specific-design partsMetal mold/jig tool : no-charge provision paid provision self-procurementMaterial : no-charge provision (paid processing) paid provision self-procurement

Classification of Material (3)Regular materialAllocated material (purchase in each case of necessity)ABC ManagementPart A ---- high value major-emphasis managementPart B ---- mediumPart C ---- low value abridged management

ABC Management in Purchasingcumulative purchase pricepart C(fixed quantity orderby simple purchase method)part Bpart A(fixed quantityorder)(major-emphasismanagement)(order placementin each case)(periodic orderplacement)cumulative number of items(%)Takahiro Fujimoto'Introduction to Production Management'Nihon Keizai Shimbun, Inc. 2001 (Ⅱp122 figure.12.2)Note: In parenthesis are examples of typical purchasemanagement method for each category.‡

Purchasing OrganizationGrown to an independent division gradually (particularly in large companies)Purchasing staff size : 1-2% of factory employees in many industriesJapanese auto companies: tendency to have compact sizeConcentration/Decentration of Purchasing OrganizationHead-office level business division levelConcentrated purchasing system : scale merit, mutual flexibilityDecentration purchasing system : flexible response, fostering managerCooperation with other divisions

Positioning of Purchasing Division in Total Company menthuman resourcesdepartmentXX divisionXX tmenttechnical developmentdepartmentadministrativedepartmenthuman asingdepartmentXX divisionReference: Tsukasa Shimazumaterialdepartmenttechnical developmentdepartmentＣ．mixed organizationＢ．purchasing organization within divisionＡ．independent purchasing organization

Phase Interface and Coordination Among Divisionspurchasing makersuppliertop onquality assurancequality urchasing rationtop managementsales division‡"TOYOTA 'Supplier's guide 1996 TOYOTA' Nihon Keizai Shimbun, Inc.Reference: Takahiro Fujimoto 'Introduction to Production Mmanagement' Nihon Keizai Shimbun, Inc. 2001 (Ⅱp126)"

２．Purchasing Cycle and Its Management (volume product)Structure of Purchasing Managementup to conclusion of purchase contractmanagementafter start of purchasingTakahiro Fujimoto 'Introduction to Production Management'Nihon Keizai Shimbun, Inc. 2001 (Ⅱp127 figure.12.5)purchasing organization (centralized purchase / decentralized purchase)person(s) in charge of purchasing (buyer) recruitment/fosteringpurchasing policy (purchase management rule)material/parts designvalue analysis, value engineering (VA/VE)decision on make or buy(in-house/subcontract manufacturing, provision of mold, loan of design drawing)supplier development and market research on purchasingdecision on supplier (bid, development competition, special-appointment order)conclusion of purchase contract (basic contract, individual contract, paper work)purchasing cost management (decision on purchasing price)purchasing delivery management(timing of order placement, progress management, demand)purchasing quantity/inventory management(ordering rule, order quantity, delivery frequency)purchasing quality management(receiving inspection, no-inspection receiving, quality assurance responsibility)transportation/warehouse management(transportation means, hand-over condition, warehouse network)‡

Model of Purchasing Management dual contract２definition１４simplification of purchase office work３applicable range１５securing of delivery time４purchasing category１６provision and loan of property５data maintenance１７receiving inspection６execution of advantageous purchase１８disposal of defects７selection of quoter１９payment８selection of estimate and supplier２０training/fosterage of trading partner９handling of estimates２１storage of document/ledger sheet１０purchase approval２２report１１informal notice of order２３training/assistance１２basic contract２４institution of business procedure regulationTsukasa Shimazu 'Book to understand Work of Purchase Control' NIPPON JITSUGYO PUBLISHING‡

Purchasing PolicyTo put a through purchasing policy into a manual as purchasingmanagement policy.ＶＡ（Value Analysis）／ＶＥ（Value Engineering）value function costFrom function's view point, eliminate excessive facility, waste in design.ＶＡ： volume production stageＶＥ： development stagePeople buy "function", not Mono (article).

Example of VE --- same in function, but largely different in costFigure removeddue to copyright restrictions‡Seiichi Mito '' Nihon Keizai Shimbun, Inc.

Example of VA at Aoyama Seisakusho("caulking" process method for oil switch valve)

Figure removeddue to copyright cklistSeiichi Mito 'Knowledge of Purchase Control' Nihon Keizai Shimbun, Inc. (p.114-115)

Decision on Self-Manufacturing or Subcontracting (make or buy)Draw a border line in product/process systemIts judgment criteria?Japanese auto companies--- tendency for low in-house productiondelivery in subassemblyrelatively few primary makersUsed as a buffer in business depressions?---- not so much in Japanese auto makers

Rate of In-House Parts andNumber of Trading Parts Supplierscase of high rate in-house productioncase of low rate in-house le parts‡hierarchystructure of partsrange ofin-houseproduction‡Takahiro Fujimoto 'Introduction to Production Management' Nihon Keizai Shimbun, Inc. 2001 (Ⅱp128 figure.12.6)

Comparison of Parts Suppliers' System in Japan and America (1980s)Supplier system in Japan (1980s)parts makerswith design skillsAutomakerthe 1st partssupplierthe 2nd partssupplierthe 3rd and the 4thparts supplierSupplier system in America (1980s)Automakerthe 1st partssupplierparts makers withno design skills

Comparison of Parts Procurement Structure in Japan and America (1980s)GM：Ford：Toyota：in-house production50％in-house production45％in-house production30％assembly factory32assembly factory17assembly factory5in-house partsproductionfactory 115secondaryparts maker10,000primaryparts maker2,500？in-house partsproductionfactory 50secondaryparts maker6,000primaryparts maker1,800？in-house partsproductionfactory 5primaryparts maker216secondary and thirdparts maker1,000Author making (reference: 'Andersen Co.')

Approved Drawing Method and Loan Drawing MethodProblem on separating design works into in-house or subcontracting(custom design parts)Loan drawing : detail design by ordering partyApproved drawing : detail design by order-receiving party(drawing owned by supplier)Consigned drawing : detail design by order-receiving party(drawing owned by automobile companies)Design sub-contract development efficiency, time reduction ( “Leave it to a specialist.”)parts' produce-ability (easiness of making)

Types of Automobile Parts Trade : From Viewpoint of Outsourcing Designwork allocation on the partspartsmanufacturingin-house ilitytypeoftradeorganizationloan drawing methodoutside productionblack boxmethodconsigneddrawing methodrelationalcontractapproveddrawing methodready-made partsmarketNote: C signifies auto maker, and S parts maker. Reference was made to Banri Asanuma "Company Organization in Japan"Toyokeizai Shinposha regarding to "type of trade". For simplification, work allocation relative to development works, etc.,on metal molds/jig tools were omitted.‡Takahiro Fujimoto 'Theory of Evolution of Production System' Yuhikaku Publishing Co., Ltd.

Allocation of Development Work in Finished Car Maker and Parts Maker1. Ready-made parts(supplier proprietary parts)Finished car makerproductconcept2. Approved drawing method/consigned drawing method(black box parts)Volume producer of partsparts conceptFinished car makerproductconceptVolume producer of partsSuggestionparts selectiontarget spec/layouttarget spec/layoutdetail parts diagram,trial partscar testdrawing approvalproductionprocessfinished carpartsdetail parts diagram,trial partsproductionprocessfinished carparts‡Takahiro Fujimoto, Clark K.B. 'Product Development Power' DIAMOND,Inc. 1991

3. Loan drawing method (functional parts model)(detail-controlled parts)Finished car maker4. Loan drawing method (body parts model)(detail-controlled parts)Finished car makerproductconceptproductconceptTrial model parts makertarget spec/layouttarget spec/layouttrial partsdetail partsdiagramfinished cardetail parts diagram,trial partsVolume producer of ed carjig/mold provisionpartsVolume producer of partsLegendsmain information stockmain information flow‡Takahiro Fujimoto, Clark K.B. 'Product Development Power' DIAMOND,Inc. 1991

Involvement in Development of Parts MakerJapanEuropeAmericaEstimated share of parts by parts' makers against total partsdevelopment man-hours.Reference: Clark, Fujimoto "Product Development Performance." 1991